Law firm Dentons hives off China business as Beijing tightens regulation

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Dentons, the largest western law firm in China by staff, is hiving off its operation in the country in response to Beijing’s intensifying regulation, which has hit foreign companies.

The firm informed clients on Monday it was making the move due to the “evolving regulatory environment for Chinese law firms”, including new requirements “relating to data privacy, cyber security, capital control and governance”.

The decision by Dentons comes amid worsening prospects for foreign companies in the country as the Chinese government expands cyber security and data protection laws on national security grounds. China broadened its anti-espionage laws in April to cover any “documents, data, materials or items related to national security and interests”.

Lawyers for Dacheng, the firm in China, will operate within a completely separate entity to which Dentons will refer clients, Dentons said.

Dentons had merged with Chinese group Dacheng in 2015. But the Dacheng name will no longer be used by Dentons, and the Chinese entity will not contribute to the firm’s global profit pool. The group is already regionally separated under the Swiss verein system, which allows merged entities to remain somewhat independent.

Several other firms have told the Financial Times they are considering similar moves in response to China’s new rules, but few have publicly announced a separation.

The decision to in effect leave China was outlined in an email sent to clients by Dentons partners and seen by the Financial Times.

In the email, Dentons said Dacheng “will no longer be a member of the Dentons Group and will instead operate as a separate and independent legal entity under a ‘preferred firm’ relationship with Dentons”. It added that the firm’s Hong Kong offices would remain a part of Dentons itself.

“We expect the most notable change you will see is an update to our Firm’s logo and branding, which will return to our pre-2015 approach that does not include the Chinese characters and will roll out in the coming weeks,” Dentons said.

In a statement, Dentons said it would “continue working together [with Dacheng] to meet our clients’ needs” across China and the more than 80 countries in which the firm does business.

Foreign businesses operating in China have been alarmed by a series of raids on global companies. In March, Mintz Group employees in China were detained following a raid by authorities, while in April, China’s state security services carried out raids on management consultancy Bain’s Shanghai office.

In May, law enforcement authorities visited the offices of Capvision, which specialises in connecting management consultants and investors with a network of 450,000 experts.

Dentons became the largest Western law firm in China by number of personnel when it joined forces with Dacheng in 2015.

Prior to the Chinese separation, it boasted more than 21,000 staff globally, including more than 10,000 attorneys.

Additional reporting by Thomas Hale in Shanghai